Market Watch – Summer Slump or the New Reality?
Although we always expect a summer slow down, many people are trying to figure out how much of it is actually the market correcting itself.
The Globe and Mail had a great market report last Friday that I’d like to share with you for some perspective…
By CAROLYN IRELAND – From Friday’s Globe and Mail
August 8, 2008 at 12:00 AM EDT
Bosley Real Estate Ltd. agent Michael O’Brien is seeing houses sit on the market for two or three weeks these days. In 2007, very few houses lasted a week.
“Mind you, last year was probably a once-in-40-years kind of market,” he says.
The number crunchers bear that out: Toronto’s lethargic spring real estate market settled into a true summer slump in July as sales fell 12 per cent in the Greater Toronto Area.
The number of houses and condominiums that changed hands in the resale market dropped to 7,806 last month, compared with the 8,912 transactions recorded in the same month last year, according to figures released this week by the Toronto Real Estate Board.
Prices, meanwhile, remained stable. Throughout the GTA, the average price came in at $371,427 to mark an improvement of slightly more than 1 per cent from the average price of $366,012 realized in July, 2007.
In the city of Toronto, the average price was tallied at $395,342 in July to stay virtually flat, with the average price of $395,044 recorded in July, 2007.
TREB president Maureen O’Neill points out that July, 2007, was the best July ever recorded, when sales jumped an eye-popping 26 per cent over the year-earlier tally.
For the year-to-date, sales in the GTA have declined 14 per cent from the figure this time last year.
Mr. O’Brien says Toronto’s real estate market is still healthy — especially compared with cities south of the border.
“Most of North America would kill to have our real estate market.”
The agent, who does a lot of his business in downtown neighbourhoods such as Cabbagetown and Leslieville, says listings are reasonably plentiful, but there’s no big flood of houses onto the market.
Some clients are holding off listing until the fall, the agent says, but he is advising people who want to sell to put their houses on the market because no one can predict how the fall market will shape up.
The federal government has announced reforms aimed at avoiding a U.S.-style housing price bubble. Starting Oct. 15, the Finance Department will stop guaranteeing 40-year mortgages and mortgage loans with no down payment.
Mr. O’Brien says the new rules are bound to take some potential buyers out of the market — particularly at the lower end.
At the other end of the price spectrum, he says houses listed at $2-million and above are sitting on the market longer because luxury properties are purely a discretionary purchase.
“The high end is pretty darned slow,” he says. “Whenever there is a bit of economic uncertainty, the high end slows first.”
Mr. O’Brien says that setting the right asking price for a property is crucial this year because many houses are not attracting multiple offers.
Last year, agents were often trying to create competition for houses by setting low asking prices and then holding offers on a specific day. About 95 per cent of them were sold on the offer night at a price far above asking, he says.
“We could underprice it considerably and the market would correct it.”
This year that strategy is risky, Mr. O’Brien says. He advises sellers to list at a price they would be willing to accept or use as a starting point for negotiations with a prospective buyer.
Geon Van der Wyst, an agent with Royal LePage Real Estate Services Ltd., says buyers are cautious because they see the poor economic environment in the United States and wonder how much of the bad news will spill over into Canada.
“I like to counteract that when buyers have that mentality by saying that I still think the Canadian market is very healthy.”
Mr. Van der Wyst points out that price gains in Toronto have been pretty steady over the past seven years, compared with the sudden spikes recorded in Vancouver and Calgary. Toronto’s more moderate pace of growth means the market is not as susceptible to a sudden plunge, he believes.
Houses in the central core of Toronto are being bought quite quickly when sellers are not unrealistic in their asking price, Mr. Van der Wyst adds.
“I think some people are just a little bit more greedy than they should realistically be.”
Across the GTA, the average price on the market has increased to 33 days from 31 days a year ago, TREB reports. Earlier this week, there were 26,543 active listings, which is a 28-per-cent increase from a year ago.