I Googled “confused person” and I thought this photo was a good fit. If that’s your grandpa, I apologize.
2023, what a year it has been… so far. And I say so far because so far means 5.5 months. But what we have experienced in those 5.5 months has been a whirlwind of ups and downs that you might experience over the course of a year or two. There are some very eye popping statistics out there that we will talk about here in this blog today, but to me the most confusing part of this market revolves around the psychology of today’s market participants. Let’s dive in a bit here.
When we talk about confusing, and “the market”, the first thing that probably comes to mind is stats related. Sale prices, number of sales, new listings, active listings etc. And while I love stats, we won’t go too deep down the rabbit hole today and instead choose to focus on a couple of key indicators.
#1-Average Sale Price. This is the easiest and most consequential stat to follow in any real estate market. What are prices doing? In 2023, they are changing, a lot. To start the year, we hit a low average sale price for the market in London, erasing two years of price gains. This was the tail end of a fall in prices that had begun in March of 2022. Did anyone know that this would be the bottom? Nobody knew for sure, but some of us were toting this as the buyers opportunity of the year. So if you bought a house in January of 2023, congratulations to you for fighting through the noise and input from everyone in your life for making a smart decision, one which will pay dividends in years to come as the market regains its upward momentum.
Except… we didn’t really have to wait years to see the market regain momentum and start to ascend. We have seen the market rebound in a major way since January, fuelling the second fastest rise in prices since the end of 2021 into the beginning of 2022. Prices from January to April increased %18.8, which is a massive gain in a 3 month span. For comparison sake, prices increased 22.7% from November of 2021 to February of 2022 which is just wild. But I hope that’s gives some context to the beginning of this year because the beginning of 2022 was the hottest market that we have ever seen and will likely ever see for a very long time.
I would argue that this surge in prices was even more crazy because it came after we saw prices fall 28% in less than a year. What a rebound. Prices had been steadily increasing in 2021 leading into the fall before they exploded. So 2023 takes the cake here.
#2-New Listings. New listings is almost as important as the average sale price, however, I would say it is a less reliable indicator of the market simply because of how this statistic is tracked. But first, what has happened with new listings so far this year? I’ll say this, we won’t be setting any records for listings this year. Listings are down, big time. We are seeing anywhere from 20-30% less listings compared to the 10 year average in any given month, something that is extremely disappointing for buyers. And this is the confusing part: 2022 was a record year for new listings! If you look at the highest number of new listings in a single month over the past 10 years, 4 of the top 5 occurred last year. That is absolutely insane. But perhaps all that inventory on the market actually hurt sales prices as fewer people were looking to buy. And this year, shorter inventory forced prices higher as more buyers decided that they were comfortable enough to enter the market... that makes sense but it’s not what happened as we will see next.
And quickly, a note on why new listings isn’t as reliable as average sale price: cancelled and relisted listings. If you have a house that has been sitting on the market, and you want to refresh your listing, you might do a price reduction. If you really want to grab the buyer pool’s attention, you will cancel your old listing and relist at the new lower price, thus showing 0 days on market. Now, we have two new listings for the stats pages for only one house. Houses are sometimes relisted 5 or more times. It’s not common, but it does happen. And when that house eventually sells, we only have one sale and one sale price for the stats. So you see the difficulty there. Last year, people started to pay attention to this because we were seeing a lot of homes cancelled and relisted, something that hadn’t happened in a while because “hOuSeS SoLd tHeMsElVeS” from 2017-2021 and none of them were ever cancelled.
#3 Number of Sales. This is where we tie the whole confusing ribbon into a bow. Because sales are lowwwwwwwwwww. As in half of what we might expect to see. So the idea that a ton of people are buying houses right now and that is what‘s forcing the average sale price up, that argument just doesn’t hold weight in my mind. Fewer sales are happening this year even compared to all of 2022. Not once this year have we seen higher sales in a month compared to 2022. NOT ONCE. And last year from March onward was supposedly the coldest market in recent memory? Woof, how does this make sense.
For us to draw any logical conclusions from this, we have to look outside the stats and into the mind of a person that wants to buy and/or sell a house in 2023. The mentality of the market has rapidly changed and will continue to change until… well I don’t really know when this is going to end to be honest.
First, what are the factors impacting a person’s decision to buy or sell a house. Here’s a list: interest rates, a recession, what can I afford now?, what is my house worth?, should I buy or sell first?, will prices go up or down in the near/medium, long term future?, when is my mortgage up for renewal, am I interested in anything that’s available on the market, can I buy a house conditionally on the sale of my own home?, will I have to compete with other buyers for the house that I want?, am I willing to do that?…. The list goes on.
And when I say that I don’t know when this is going to end, I’m referring mostly to the fluctuation in the BoC’s overnight rate and the rumblings of a recession. The rest of these questions will always exist in any market, however, it is usually much more straightforward to make a decision than what most folks are currently experiencing.
The confusion regarding the economy and the threat of ever increasing interest rates is the true culprit behind all of this. I wrote that the interest rate hikes are the sole reason for the up and down nature of this market earlier this year and I maintain that stance. We just had a rate increase and it looks like there will be another next month or in the fall, but what the hell do any of us really know about this stuff? Nothing they do makes sense regarding the interest rate, at least not to me or anyone I talk to. But hey, I only took first year economics so don’t listen to me anyway.
It’s alllll very confusing. Lots of houses are sitting on the market for 60 days or more, but a lot of homes are also selling in multiple offers for 10-15% over the list price. Prices are going up, but less people are buying. The government wants to build more houses, but makes it really unaffordable for anyone to buy a new house. Please explain that one to me in a way that makes sense and I’ll gladly buy you lunch. Last year was up, then down, now we’re back up, but for how long, or are we still going up? I think that sums it up, confused much?
Here is some practical advice for navigating this market: be well informed, do your homework, work with people that you can trust and know what they are doing, and last but not least: MAKE CONFIDENT DECISIONS. At the end of the day, the decisions you make are your own and you have to live with them. So do what you think is best and be confident in those decisions. If you can stick with your decisions and not waver after every piece of news or headline comes out, or what your coworker says to you, then you will be a happy person.
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