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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

June 15, 2017 | Stats and Lies

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

 

By hood standards, it’s a deal. A little over a million for a reno’d semi in central 416 within walking distance of the subway and endless shops, galleries and eateries. But in the week since this tasty, fresh listing came out there have been zero showings. “In fact,” says the listing agent, “there have been no calls. Except yours.” And I don’t count. I’m just researching a blog post.

The seller bought another place firm two months back, just finished pre-listing renos ten days ago, and is already freaking. “I expect a price reduction in another week,” Sandra, the agent, said. So if you’re interested in buying, why not just wait?

This is normal street experience now. Properties for sale everywhere (another 10,500 came on the market in the Golden Horseshoe last week), sparse buyers, few deals. Every week since April momentum’s been lost. Supply is overwhelming demand. Purchasers can buy conditionally upon financing or home inspections. There are no bidding wars. Offer nights are gone – you’re free to make one whenever you want.

According to the pop realty website known as Zolo, here’s the latest in terms of Toronto prices (down 4.6% in the past month) and listings (7,055 new ones in the last 28 days):

GTA prices blow off...

 

...as listings swell and sales sag

 

Well, that seems definitive enough. But, wait. Here’s a completely different story being told by the brain trust at Teranet-National Bank. According to this outfit Toronto (and Vancouver) real estate is reaching for the moon, just as it was two months ago.

OTTAWA – Canadian home prices rose in May as Toronto remained robust despite recent government efforts to cool the market, while prices in Vancouver picked back up to hit a fresh high.. The Teranet-National Bank Composite House Price Index, which measures changes for repeat sales of single-family homes, showed prices rose 2.2 per cent last month. Compared with a year ago, prices were up 28.7 per cent in Toronto and 23.5 per cent in Hamilton, a record for both. For Toronto, Canada’s largest city, it was the fourteenth consecutive month of acceleration in home prices on an annual basis, the report said.

As for YVR, the TNB house price index is equally bullish and unequivocal:

It’s taken nine months, but the Vancouver housing market may have finally shaken off the foreign buyers tax, data from a home price index suggested. The Teranet-National Bank of Canada House Price Index showed that Vancouver home prices grew by 8.2 per cent year-over-year in May, and 1.46 per cent month-over-month. The index reached its highest level since September 2016, which was one month after a 15 per cent property transfer tax on foreign buyers came into effect in Metro Vancouver.

Well, obviously Zolo is out to lunch with regard to rising listings, sagging sales and downward pressure on prices. The TNB index shows exactly the opposite – acceleration. But, wait. Here’s the Canadian Real Estate Association with fresh numbers showing that government anti-bubble measures have hit the housing brakes hard.

OTTAWA – Resales of Canadian homes dropped 6.2 per cent in May from April, with Toronto sales plunging 25.3 per cent, as new housing policy changes side-swiped demand and new listings rose again, the Canadian Real Estate Association said on Thursday. It was the first full month of housing resale data since the province of Ontario introduced a 16-point plan to rein in the hot housing market in Toronto, Canada’s largest city, amid fears of a bubble.

Meanwhile the Toronto Real Estate Board’s internal numbers reveal sales just fell over 40% from the week before, while the number of available homes soared by more than 35%. And that came atop a 6% price decline in May plus a 20% sales plunge.

It begs the question of whether things are getting rapidly better, or alarmingly worse. On one hand the Vancouver Real Estate board says that market is rebounding, but Capital Economics’ David Madani calls it a ‘head fake’  a 2with0-40% abyss looming.

 

Well, it’s worth noting that Teranet-National Bank numbers are as stale and largely irrelevant as Kevin O’Leary by the time they’re published. They track ‘solds’ which were registered a couple of months ago, and only those homes for which two sales over time have been recorded.

The Teranet–National Bank House Price Index™ is estimated by tracking the observed or registered home prices over time. Properties with at least two sales are required in the calculations. Such a “sales pair” measures the increase or decrease of the property value in the period between the sales in a linear fashion. For the Teranet–National Bank House Price Index™, all properties that have been sold at least twice are considered in the calculation of the index; this is known as the repeat sales methodology.

Over the sweep of decades, this will be a great tool. Social historians will love it. But if you’re trying to time buying a house in a volatile environment, it totally sucks. The media that attributed this data to last month’s activity deserve to be replaced by synths.

How does Zolo do it?

Numbers are based on firm contract dates, not when the transaction is reported or when the contract closes. A contract is firm when both the home seller and buyer agree to the transaction, however this may not be reported in a timely fashion. Therefore, transaction reported dates are when the Realtor submits the sale to their local board. A contract is closed when the transaction actually occurs and the buyers move into the house. Normally, contracts close about 6-8 weeks after a contract is firm, which means the data you’re seeing is reported in real-time.

In other words, when a buyer and a seller agree and the realtors submit the deal, canceling the MLS listing, Zolo reports it. This is also what the local real estate boards do. Yes, it’s imperfect because some deals never close and yet are reported as sales. So board numbers tend to inflate sales activity in any given month.

The point of all this is simple. Taking the market temperature will let you do the right thing when buying or selling – which is exactly the opposite of what everyone else is doing. When bubbles form and FOMO foments, run. When listings pile and sellers moan, strike.

And don’t believe everything you read. Except here, I mean.

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June 15th, 2017

Posted In: The Greater Fool

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