Everyone knows that 1+1=2. It’s something that you learn at a very young age, perhaps your first foray into the world of mathematics, and likely something that you will never forget. It is just one of those fundamental laws of the universe that nobody can refute.
What if we were to try and create a similar “law of the universe” for simple economics. Would it be wrong of me to say something like “if demand/sales go down, prices will go down” is a similarly irrefutable law? Probably in most cases. Imagine if nobody wanted to subscribe to Netflix because their content got so bad (it already has?!!?) you would probably think that they would lower their subscription prices to attract new viewers or retain existing subscribers. That probably makes sense to most people.
How about electric cars? I read online that sales of electric vehicles in Canada are slowing down and apparently you can get some absolute steals on electric vehicle inventory right now if you’re in the market. That makes logical sense!
Let’s change our focus to the local real estate market, where apparently 1+1 does not equal 2 if you have been following along for the past few months.
Here are some recent trends: we have had the fewest number of sales for the months of March and April, ever, and are likely on pace to say the same for the month of May. At the same time: prices have increased each of the last two months and are likely to do the same in May.
WHAT??!?!? How? That doesn’t make much sense at all! I agree with you and I can think of a plethora of reasons as to why this is happening, but I want to talk about a fundamental difference in our real estate market compared to a normal market.
Who is the seller in a typical market? A company, a business, somebody that relies on sales to generate revenue to earn a living. Who is the seller in real estate? It’s a homeowner. A homeowner with their own goals, strategies, motivations and perceptions of reality.
Here’s my meaning: not all homeowners are real sellers. Some of them (or a lot of them at this particular time) are not particularly motivated to adapt to the current market and pursue an actual sale. A lot of them are perfectly happy to have their house sit on the market until they can “get their price” if that ever happens.
As part of the dynamics of the market, wherein new listings are far outpacing sales, we have a growing amount of inventory available on the market, but it is not leading to more sales. Why? I’ll give you some reasons why. But to begin with I want to say that currently, there are 1452 active listings in London, Ontario. That’s a lot, especially considering that there haven’t been more than 500 sales in a month since last June and we are unlikely to pass that threshold until rates decline significantly.
So if by multiple measures, we are in a “buyer’s market” why aren’t prices declining and why aren’t buyers scooping up properties at a discount?
Let’s take a very in depth look at those 1452 listings available on the market today and try to understand what’s really going on.
As I mentioned earlier, a lot of the listings available today are being offered by unmotivated sellers. How do I know? Because they have been available for a long, long time. In our market today, the average days to sell is 22 and the median is 17. So if your house has been on the market for longer than that, your chances of selling fall significantly unless you do something, like reduce your list price.
Of our 1452 active listings, how many have been on the market longer than say 17 days? I’m going to break this down into two categories because a lot of “old” or “tired” listings are cancelled and relisted to gain attention as a “new” listing.
Firstly, let’s look at the most recent listing, ignoring total days on market. Of the 1452 available listings, 953 of them have been on the market for 17 days or more, or 66%. A neat two thirds.
Now, let’s look at total days on market which I think is far more useful because it is a more realistic representation of a listing’s lifespan. 1087 of our active listings have been on the market for 17 or more days, or 75%.
By basic definition, that means half of all sales are coming from only ¼ of the available inventory. The other ¾ of listings are fighting for attention from the other half of buyers.
A few more tidbits:
225 of the available listings are classified as “new” construction. The average days on market for these properties is 101 and the median is 86. That is only the most recent listing and not the full lifetime. Some of these homes have been listed for almost 5 years straight.
Of the available inventory, 267 listings are priced over $1M. So far in May, only 24 properties have sold for $1M or more. We have almost a full year’s worth of inventory in the $1M+ market.
Currently, our average sale price is just under $650,000. Of the available inventory, 61% of listings are priced higher than that. The median sale price is $612,000. 991 of our 1452 available listings are priced higher than that, or 68%.
Here’s my point, a lot of the inventory available is not attractive to a buyer and is unlikely to sell. Majority of the market is focusing on the new inventory (less than 17 days on market) and couldn’t care less about the other 75% of listings that have been sitting and sitting. Surely, this can help to explain why prices are not declining amidst the worst sales numbers ever. It’s because there are so few attractive homes available.
Anecdotally, majority of new listings that my buyer clients want to see, if priced and presented well, are ending up in multiple offers. The numbers don’t make sense or support this, but we most certainly are not in a “buyer’s market”.
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