Toronto Real Estate Just Made A Move That Typically Leads To Falling Prices

Greater Toronto real estate’s inventory squeeze appears to be rapidly coming to an end. The sales to new listings ratio (SNLR) made a very sharp decline in April, marking the third month in a row. Such sharp corrections in the SNLR are historically associated with falling price growth. Over just the past 3 months, the decline now ranks as one of the fastest seen in decades.

Sales To New Listings Ratio (SNLR)

The sales to new listings ratio (SNLR) is one tool used to figure out how quickly inventory is being absorbed. Higher ratios mean the market is accepting the inventory at the prices very quickly. Lower ratios mean buyers aren’t quite as keen on the inventory being offered at the prices. High ratios mean a tighter market with fewer choices. Low ratios mean a more loose market, with more options. But what’s high and low?

There are some generally accepted industry standards that are thrown around. Markets with an SNLR above 60% are called sellers’ markets, where prices tend to rise. When the SNLR falls below 40%, prices are expected to fall. Between 40% and 60%, and the market is considered balanced, and priced right for demand. Of course, the reality isn’t quite that neat, now is it? 

Some regions will always have higher ratios, with balanced being in the higher range. For example, Toronto’s 2018 price drops occurred without the ratio ever falling below 40%. That’s because the shift in expectations is often enough. Sales fall faster than inventory can adjust, if enough buyers reject it. That lowers the ratio, sometimes causing new listings to list at a lower price. For historical context, Toronto has only been under 40% for four months in the past 20 years. 

Toronto Real Estate Has Seen The SNLR Fall Nearly 20 Points 

Greater Toronto real estate is seeing the SNLR fall faster than it saw it increase. The ratio fell to 66.10% in April, down a seasonally adjusted 6.56% from the previous month. The ratio peaked at 86.06% in January, and has now fallen 19.96 points since then. Back in January, it was the highest ratio in exactly 19 years. This marks one of the fastest declines, and ramp-ups, in the history of Toronto’s market. 

Greater Toronto Sales To New Listings Ratio

The annual percent change for the benchmark price vs the seasonally adjusted sales to new listings ratio (SNLR).
Source: TRREB; Better Dwelling.

Toronto Real Estate Usually Sees Home Prices Drop After The SNLR

In over 16 years of benchmark price data, there have only been three 20 point drops in SNLR — 2007, 2009, and 2017. After peaking in July 2017 and September 2009, price growth began to fall 6 months afterward. In January 2017, it took 3 months for price growth to decelerate after the SNLR peak. Worth a mention is the first two drops in SNLR were more gradual compared to the 2017 one. The drop in 2017 more closely resembles the current decline in SNLR — although they’re happening for very different reasons. 

Renewing demand after such a large pull forward would require a substantial injection of capital into the market. It can’t be discounted, especially since the federal government outright said a price drop is unacceptable. However, right now the market is looking towards a much needed cooling. Earlier this month, BMO also said they believe the market “bubble is cresting” (peaking), and separately cited the SNLR as a primary reason the market is past peak momentum.

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  • Ahmed 3 years ago

    Everyone said it was a squeeze. No one knows what that meant.

    • Patrick 3 years ago

      Any explanations for those of us looking to learn, but don’t quite get it? Google search doesn’t quite explain the context you’re alluding to

    • Jimmy 3 years ago

      What does a squeeze mean?

      • Trader Jim 3 years ago

        You pay more to buy in the squeeze. If it’s a true squeeze, prices fall back down after, when the squeeze is gone. Think of toothpaste.If you squeeze it hard enough, there’s no toothpaste (inventory) in the area you just squeezed.But on the other side, it’s a sloppy mess of excess.

    • DL 3 years ago

      Prices fall or Price growth begins to fall?

  • Gerry 3 years ago

    You can already see the shift in demand. My neighborr held offers with a ridiculously low asking price ($900k), when everything in the neighbourhood has been selling for around $1.4 million.

    Only one offer at the price, which they rejected. Now it’s relisted for $1.6 million, and they’re probably hoping to sell “at a discount.” I’m going to laugh my ass off if it sells below $1.4 million.

    • Omar 3 years ago

      What are the odds the agent will de-list and relist or adjust the price so their stats aren’t impacted afterwards? Can’t trust indicators like over ask. They’re just vanity market metrics.

    • Trader Jim 3 years ago

      If you’re not in a rush, you can play around like that. Are they moving out of the province?

  • Han 3 years ago

    What about Vancouver’s SNLR? Does it move together with Toronto’s market?

  • Buy or not 3 years ago

    Falling prices or falling price growth? Those are two different things.

  • RWZMS 3 years ago

    “Falling Prices”

    “rapidly decelerated price growth.”

    These are not synonyms.

    • Jason Chau 3 years ago

      Right, but both statements are true in this case. It led to falling prices two out of three times in the chart, and I bet in 1988 and 1982 the drop also led to price declines.

      Further, decelerated growth involves lower prices at high growth levels, unless it’s over a REALLY long time period.

      It also helps if you if know in finance they often don’t say prices fall, but experience negative growth. Yeah, it’s weird.

      • RWZMS 3 years ago

        In finance, they talk about “declining growth” because they can’t even tolerate making money at a slower rate. As for declines, who’s ever heard of that?

        “decelerated growth involves lower prices at high growth levels” – Not sure I understood that part, unless you mean it leads to lower prices when growth levels are this high.

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