If you’re a condo buyer in Toronto it’s certainly tough to make sense of what’s really happening in the market. In the same day one can read a story about the condo market being on solid ground thanks largely to the strong demand for condo rentals followed by a story about the condo boom coming apart at the seams.
I thought it would be worthwhile to expand on a post I wrote last month on the condo market, this time taking a closer look at actual numbers to give readers a better picture of what has actually been happening in Toronto’s condo market over the past year.
While most mainstream media outlets focus on reporting changes in sales and average prices there’s actually a more important metric that gives us a more accurate picture of how balanced the market is. The sales-to-inventory ratio is one of the key metrics we use when analyzing the market because it takes both supply and demand into account giving us a more accurate picture of how balanced the market is.
To see how this works, imagine that 500 condos sold in April and at the end of the month there were 1,000 condos available for sale. In this case the ratio of sales (500) to inventory (1000) would be 50%. This level of balance between supply and demand is roughly what we are seeing in Toronto’s freehold market. There are not enough homes coming on the market for sale to meet the demand from buyers. This is why we are still seeing a lot of bidding wars for Toronto houses.
Now imagine in May sales dropped to 100 and there were still 1000 condos available for sale at the end of the month. In this scenario the ratio of sales (100) to inventory (1000) would be 10%. This level of balance between supply and demand is similar to what we are seeing in many US cities. Weak demand relative to the number of properties available for sale.
The market is considered to be balanced when the sales-to-inventory ratio is between 15%-25%. Anything above 25% favours sellers and below 15% is a buyer’s market.
The chart below shows the sales-to-inventory ratio for detached houses and condo apartments in the Greater Toronto Area.